Values Advisor

I am now in my 24th month of independence. As you read my account of this journey, I recognize that some of you are already on this path, some are contemplating it, and the rest are quite sure, at least for the time being, that running an independent advisory firm is not part of the plan. That’s perfectly fine. Running a business is not for everyone. But for those who are game, even for those who are simply curious, I hope to provide some unique perspectives and meaningful insights into this wonderful world of independence. The information that follows is intended to convey, in real time, what lies ahead for those interested in pursuing the independent route.

The Road So Far

My journey officially began on April 1, 2007, the day I left my secure corporate environment as a senior financial planner with one of the largest banks in the world and opted for independence in Baton Rouge, Louisiana, in my own firm: Integrity Wealth Management. I had previously worked for a global wirehouse, a regional brokerage firm, and another bank in the Northeast, but by 2007, I needed a change.

While there was some security and name recognition in being with a big firm, I was frustrated because I was trying to serve clients in the best way I could, but was kept from doing so by an employer who had its own best interests–and products–at heart. Moreover, the inflexibility and bureaucratic nature of a large Wall Street firm stifled my flexibility and creativity, and the only party getting any richer in the process was the parent company (as the old Wall St. joke goes, “two out of three ain’t bad”).

So I decided to strike out on my own, but was doing so without my own significant book of business. I had a plan to build up my client roster, however. In fact, though I had thoroughly and methodically planned for every contingency, or so I thought, unforeseen issues arose right away. One such example occurred right at the beginning when I selected a particular broker/dealer. At the eleventh hour, circumstances changed–that is, my understanding of how I would work with this leading independent broker/dealer turned out to be different from the B/D’s understanding–so I decided not to affiliate with that specific broker/dealer.

There I was, on my own with no place to custody assets. In retrospect, it turned out for the best. I wound up changing direction and became an RIA, a decision I’m very glad I made.

During my first few months, my income was derived primarily from financial planning fees. In my years as an employee investment advisor, I had never charged for planning and was a bit nervous the first time I quoted a fee to a prospective client.

There I was, looking directly into his eyes, when I said my fee for writing the plan “should cost between $2,000 and $3,000.” The prospective client never blinked. I was kicking myself for not asking for a higher fee! Well, this particular individual had a net worth in the tens of millions of dollars, so to him, I suppose, it was no big deal. I learned very fast that the wealthy are willing, and able, to pay for advice.

I also quickly realized that controlling expenses was one of the most important issues for a small business. I didn’t begin by renting office space or hiring any staff. I simply set up an office in my home and got to work. I did invest in technology, though. I bought a laptop and three printers–one high-quality color, one black and white, and an all-in-one unit for faxing, copying, and scanning.

Nine months into my journey, at the end of 2007, I had a total of three clients and around $2 million under management. In 2008, I added several million dollars more and have now reached a point where the business is stabilizing.

This past August, I moved out of my home and rented an office. I now have an 850-square-foot space with a nice reception area, an executive office, two smaller offices, a full kitchen, and a private bathroom. There is enough space here to accommodate the growth of my business for several years.

Advisor Value and Client Acquisition

Many years ago, I realized that for an advisor to be successful, he must offer something of value to the client. It’s equally true that there are a limited number of “value metrics” by which an advisor can create a differentiation between himself and his competition. An advisor must not only have a well-defined story to tell, but the story must be substantive and easily digestible by a client. Let’s explore the advisor-client relationship.

There are basically three groups of advisors–good communicators, good technicians, and those who possess both qualities. I believe it is this third group which has the greatest potential for long-term success, and that’s because it’s tied up with why clients choose a particular advisor? Let’s take a look at some basic principles which greatly influence client acquisition and how I have addressed it.

I find that most clients choose their advisors based not on a set of factual, logical data, but rather from an intuitive, emotional perspective. Maybe the advisor told a good story and made the client feel comfortable. Perhaps they were referred by a trusted friend. In any event, the reason a client chooses an advisor, or makes any other decision for that matter, is because they instinctively “feel” it is the right thing to do. Why this disconnect between fact and feelings? I believe it is due, at least in part, to the fact that we’re all emotional creatures and that clients, in particular, really don’t understand our business. They may be very intelligent people, and accomplished in their own areas of expertise, but most couldn’t tell you the difference between a brokerage operation and an RIA platform.

In my practice, I’ve created a document titled “What’s Important to You.” A prospective client simply reads each item on the list and then ranks the item’s importance. If they rank the items low, I’m probably not the right advisor for them and they should find someone better suited to their situation. However, if they rank the items high, meaning they view them as important, then it’s only a matter of their willingness to hire me, because the prospect’s values and mine coincide: those prospective clients know that I can deliver what is important to them.

So examine your business. Try and put yourself in the client’s position. Better yet, start a client focus group, something I plan to do in 2009. Twice a year, I will gather selected clients and ask questions such as: “What do you like about what I provide?” “What do you dislike?” and “What can I do to improve my services?” How do you find out what the client wants? You ask them!